Wednesday, August 27, 2008

Czech Real Wage Growth Slows Further In Q2 2008

Czech real wages grew at the slowest pace in almost 10 years in the second quarter, helping reduce concern that inflation will get stuck above the central bank's target range. The average salary rose by 8%, which meant a rise in real wages of 1.1 percent when adjusted for 6.8 percent inflation, compared with revised growth of 2.6 percent in the first three months, according to data from the Prague-based statistics office last week. The average gross monthly paycheck jumped to 23,182 koruna ($1,387) after a revised 10.2 percent rise in the first quarter.

The central bank, which on Aug. 7 cut its key interest rate for the first time in three years, mentioned strong wage growth one of the factors that could frustrate its aim of reducing the inflation rate to its 3 percent target range next year.

The central bank is watching closely to see whether the current inflation spike, which they expect to wane during 2009, will lead to faster pay increases than justified by productivity gains, providing a second-round impulse to price growth.

The lowest jobless rate in 11 years, a record number of vacancies and tax optimization pushed first-quarter wages up the most in more than 9 years. The government introduced a flat income tax rate on Jan. 1, replacing four progressive rates, leaving most workers with more net pay in their pockets.

Among private businesses, the monthly paycheck was 9.3 percent higher, at 23,692 koruna. When adjusted for inflation, wages grew 2.3 percent, while the salaries of state employees jumped on average 3 percent to 21,344 koruna, translating into a 3.6 percent drop in real terms after the government capped public wage gains to restrain spending.

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